Moody's Warns Low Gas, Power Prices Could Hit Unregulated Utilities

Continued low natural gas and electricity prices are likely to cut revenue and cash flow of power-plant operators that sell electricity into the wholesale market, Moody's Investors Service warned Wednesday.

Moody's said it was keeping an eye on so-called unregulated power generators for possible credit-rating cuts amid a "deterioration in the financial profile" being driven by low natural gas prices.

Unlike regulated utilities that operate power plants to serve their customers at regulated rates, unregulated power plant operators sell electricity on the open market and depend on rising prices and growing demand to cover their costs and earn a profit.

Moody's said unregulated power generators owned by companies that also own regulated utilities and have investment-grade credit ratings, such as FirstEnergy Corp. (FE), PPL Corp. (PPL) and Exelon Corp. (EXC) "will need to take mitigating actions to avoid rating downgrades."

Stricter federal limits on pollution from coal-fired power plants will also affect unregulated power generators, especially those that own older, less efficient coal plants, Moody's said. Regulated utilities, by contrast, can recover their costs of installing pollution-control equipment or shutting down old plants and replacing them with new ones, from their customers.

Moody's noted that unregulated power companies that have cleaner power-plant fleets, like Exelon, which operates nuclear power plants, and Calpine Corp. (CPN), which owns gas-fired plants and geothermal power plants, could see "positive impacts" from the federal pollution rules as their costs won't change, while some competitors with coal plants will face costs of complying with the rules.

-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; cassandra.sweet@dowjones.com

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